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A security pays $100 monthly for the next 10 years and the appropriate nominal interest rate is 12%. What is the present value of this security?.

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If a security pays $100 monthly for the next 10 years and the appropriate nominal interest rate is 12%. What is the present value of this security is $6,970.052203.

  • Calculating the equivalent present value of a series of anticipated cash flows requires applying the time value of money principle.
  • The computations are most greatly impacted by the pertinent interest rate.

The number of payments is N = 10 * 12 = 120.

I/Y = 12%/12 = 1% for the periodic interest rate.

PMT = 100

FV = 0

PV = PMT/r*[1-1/ (1+r) n]

PV = 100/0.01 *[1-1/(1+0.01)120]

PV = 10,000 * 0.6970052203

PV = 6,970.052203

PV = $6,970.052203.

Hence, the present value of his security is $6,970.052203.

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